How For-Profit Colleges Can Save Themselves — and Higher Education

For-profit colleges are on the ropes. Damaging congressional investigations, a bruising fight over new federal regulations, and a stagnant economy have all combined to reverse what had been unprecedented growth in for-profit enrollments

The latest numbers suggest that new student enrollments fell 14 percent at the top 10 for-profit universities, with giants like the Apollo Group and Kaplan University experiencing declines of more than 40 percent. As Bloomberg Businessweek reported last week, financial analysts now see an outlook for proprietary colleges that ranges from uncertain to gloomy.

Consumers and investors have reason to be wary. Federal statistics indicate that 25 percent of all for-profit students who started repaying their loans in 2008 had defaulted three years later. In public colleges, the comparable figure was just 10 percent. Although for-profits enroll only about 10-15 percent of all students, their students make up about 47 percent of all three-year loan defaults. By 2015, new federal regulations will cut off student aid dollars to for-profit programs whose graduates struggle to pay back their loans.

So what’s next for proprietary colleges and universities? If I knew that, I’d be raking it in with the short sellers rather than taking the bus to work every day. But it seems as though the for-profits would be wise to take a cue from other corporations that have reinvented themselves in the face of economic and political challenges. In particular, they may have a lot to learn from companies that evolved from producing and selling goods directly to consumers to providing services and expertise to other organizations.

In short, for-profit colleges should consider becoming the next IBM.

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